Hundreds of thousands of UK residential and commercial landlords could face fines for failing to make their rental homes more energy efficient once legislation comes into force. The regulation takes effect today (1 April) for new rental lets and renewals of tenancies, and for existing tenancies, on 1 April 2020.

A fine of up to £5,000 can be issued for those renting out homes that fall under the lowest F or G rating in the Energy Performance Certificate (EPC). Under the law, it is illegal for landlords to rent out property that breaches the requirement for a minimum E rating unless exemptions apply.

Like the Landlord Licensing scheme (if you are a landlord, read about the scheme here), the requirement for energy-efficient homes is not news, having been set out in The Energy Efficiency (Private Rented) Property Regulations 2015, and the onus for compliance rests with property owners and landlords.

The older the property, the poorer its energy efficiency is likely to be. Landlords with homes built in the Victorian era and early part of the twentieth century ias particularly at risk of being caught out as these types of property are often most lacking in insulation. The Department for Energy and Climate Change said when it announced the move that 65% of F and G EPC rated private rentals were built before 1919.

Many properties that are F or G rated could be made compliant just by making one change. For example, 40% of privately-rented properties could be improved above an F or G category just by installing loft insulation.

Energy Efficiency Regulation Impact on UK Rental Market

Chief executive of ARLA Propertymark, David Cox, says: “There isn’t a huge amount of awareness among UK landlords and tenants on the energy efficiency laws.

“However, over the last five years, the number of properties which are EPC rated F or G has gone down from around 700,000 in 2012, to less than 300,000. Therefore, even without statutory enforcement, UK landlords are responding to tenants’ demands for better quality, and better insulated properties.”

However, statistics seem to suggest that landlords are behind in getting their properties ready for the deadline. Monthly data by the Association of Residential Letting Agents (ARLA) show that overall rental properties managed by letting agents fell by 5% in February compared to January, the lowest level since May 2016.

Cox explained that the drop in rental supply indicates that UK landlords are cutting it fine and removing their properties from the market to make the necessary changes before the regulation takes effect.

“We could see up to 300,000 properties taken off after the deadline passes because they don’t reach the minimum requirements,” he warned.

It will, however, be difficult to know how UK landlords will be policed, says Cox, adding that less than 500 landlords are prosecuted every year and adding new laws is unlikely to improve prosecution rates.

UK property landlords can find out about recommended improvements for their property by checking their Energy Performance Certificate Recommendations Report, or obtaining a Green Deal Advice Report. There are many options for financing under the Green Deal and even receiving free insulation work under the Energy Company Obligation.

Benefits of Compliance for UK Landlords

The Department of Energy and Climate Change claims that increasing a property’s energy efficiency could increase its market value.

Data shows that the average annual cost of energy for an EPC band G property is £2,860, and £2,180 for an F rated property. This contrasts with an average annual cost of £1,710 for an EPC band E property.

Therefore a tenant whose home is improved from EPC band G to band E could expect to see their energy costs reduced by £1,150 a year so long as there were no wider changes in how they use energy in the property.

Research by AXA Business Insurance found the improvements most sought after by tenants were enhanced energy efficiency, through tools such as insulation, newer boilers or double-glazing.

Ultimately, it will result in cheaper heating and better quality of homes for tenants. However, at a time of consistent government change, increasing ambiguity and various tax increases, the proposed cost of changes at £2,500 per property is going to put further pressure on landlords, especially those outside the prime rental markets in London and the South East,” said Cox.

For detailed information about the new regulation, read: www.rla.org.uk/landlord/guides/minimum-energy-efficiency-standards.shtml

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